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  • January 2010
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Off with their heads!

So…this is the stupidest idea ever.

If you have turned on a TV today, then you have probably noticed that our fearless leader has instituted a tax against the big banks! Hoorah! Thank God we are finally getting our money back from all those big fat-cat bankers! What…what was that? You say that some of the banks paid the TARP back already, plus interest? But surely we wouldn’t put a tax on banks that have already paid the American people back. We..We are…oh, yeah, about that.

For all those who aren’t American, or have been living under a rock for the past 2 years, please allow me to recap what happened. The banks were in bad shape because of speculation in the real estate markets, which led to an inflated marketplace for derivative securities that were based on mortgages. Seeing that the financial firms needed some help, but not wanting to single any banks out (cough*** cough***Citigroup***cough***cough***Merrill Lynch) the US Government forced each company to take funds from a program called the TARP. Financial firms weren’t the only ones who gorged on the “free” money because auto firms did too. GM took a nice big  loan before it took a face-plant into bankruptcy….whoops, sorry guys, our bad. AIG, now a government run entity, is also on the hook for a disgusting amount of money. Some financial firms did very well in 2009 and were able to pay these funds back with interest, while some were not (cough***cough**Citiigroup).

So this is were we are today. El Prez himself has introduced a bank tax plan to raise $90B over the next 10 years. The announcement of the bill is some coincidental because bonus season is coming on Wall Street and the media ooh’s and ahh’s over the $500k that Goldman is paying the janitor for his yearly bonus. Not to mention the “fat cat” investment bankers who blow there nose with $20s and wipe there ass with $100s! What the media is missing is two-fold:

1. Not everyone gets a great bonus because a lot of bonuses are linked to performance.

Some people did well in 2008 and 2009 and they should be rewarded for doing so. Not everyone was trading toxic mortgage assets for Lehman or Bear. Some people were trading equities, which have rallied over 50% from their low.

2. Some people have bonuses written into their employment contracts.

This would be like someone telling you that you are going to earn $50k this year, and then when the year is over, they give you $25k and say that the company had a bad year, so they don’t have to pay you the rest. You would probably not be very happy with that, would you? Wall Street salaries are like this as well, low base, with lots of bonus potential. Its like sales, if you do well, you get paid well, if you don’t, you get fired!

The stupidest part of the whole thing is that the banks are just covering for the losses that occurred at GM and AIG. Why they should be responsible for them, I am not sure, but it seems that they are now….So where does this leave a frail banking industry? With taxes to pay and investors to convince that they are still a good investment, even though their taxes will be higher for years to come.

Obama is a smart guy, and an even better politician, but this is a bad policy and a dangerous precedent. There are my two cents, where do you fall in this debate. Are you grabbing your pitch for and heading for Wall Street, or are you with me? I will put a poll up on Tuesday, so you can cast your vote and have your say because after all this is America and we can all have opinion (You hear that China? Everyone can have an opion…but that is for another day!)


4 Responses

  1. I personally find the way you describe the employment contract contradicting with itself, if bonus is based on performance, how can you be guaranteed $50k when you sign the contract? can you elaborate it a bit more on that?

    personally, i think the incentive system in the banking industry has fundamental problems, i don’t know if it’s just a natural short-coming of the free-market or it’s an industry induced problem. it promotes short-term thinking and it’s partially why we are in this mess. How do you actually fix this, is the million dollar question.

  2. […] the full article: Off with their heads! AKPC_IDS += "6424,"; Share this […]

  3. Apologies, I re-read it and it did sound a bit awkward. Most people have incentive laden pay. That is how the average guy gets paid (typically). The big time guys are guaranteed a certain amount, no matter what they bring in and then if they exceed a certain threshold, they receive more. This is typically done for big traders or investment bankers, who will bring business with them from other firms. The company is paying for more deal flow/trading knowledge upfront, in the employment contract.

    That is the million dollar question. I think they are on the right track with claw-back provisions and granting more stock and cash. What is going to have to happen is the base pay is going to have to be raised and the bonuses are going to have to get smaller. That is the only way a firm can keep talent, while paying them a lot of money. Having the security of a salary would lessen the need for excessive risk taking because the traders/bankers know that they have a nice salary to fall back on.

  4. I agree that this is an amazingly stupid precedent, even for Obama. I read that Allstate could get wrapped up in the tax, since they have a bank holding company, yet they passed the original set of stress tests and never needed (or took) TARP funds!

    It’s a pretty good (or bad) sign that legislation isn’t good when you arbitrarily charge a company that has nothing to do with anything a fee, because you can’t set the thresholds properly. Which is to say nothing about how we’re supposed to get more lending by taking capital away from banks as a punitive measure.

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